The Theory of Value
This past March, a JPEG file by the artist Beeple was auctioned off by the prestigious Christie’s Auction House for $69.3 million.
Can pixels on a screen really be worth that much? If so, this is about to become my most valuable blog post ever, because I just right-clicked that sucker:
It’s absurd, right? But no crazier than spending $450.3 million on a few dollars worth of oil paint attached to a wooden panel.
Arguably, value is added by the vision and talent of a genius like DaVinci or Beeple, but what about the value of an image that’s not generated by a human mind at all?
CryptoPunk #2338 is an iconic classic from the earliest days of NFT artwork, way back in 2017. No human genius decided upon the exact placement of elements and coloring of those pixels. This work was generated as part of a 10,000-item set by an algorithm programmed by Canadian software developers Matt Hall and John Watkinson, and most recently sold for $4.37 million.
Other computer-generated avatars in the original 2017 CryptoPunks set can’t be had for less than six figures, with a select few breaking into the millions or tens of millions of dollars based on the scarcity and desirability of their computer-generated traits. Collectively, the CryptoPunks are currently valued at billions of dollars despite the fact that they do not exist in the physical world.
Bandwagons and Bubbles
What allows paintings, first edition books, rare Pokemon cards, or CryptoPunks to become valuable is their non-fungible nature. There is only one original version of Salvator Mundi. Books and trading cards are physical objects with a limited quantity. There’s only one instance of Beeple’s “Everydays — The First 5000 Days” or CryptoPunk #2338 that can be sourced and authenticated by processor-intensive blockchain computations. My copy-paste JPEGs may be identical to the pixel but aren’t the ones that hold any value.
Collectible things have whatever value a buyer and seller agree on, according to the rules of supply and demand. On the supply side in 2021, we have a growing bandwagon of programmers like Hall and Watkinson, artists like Beeple, and other folks looking to make a few bucks. On the demand side in 2021, we have a bandwagon of investors with a fear of missing out and skills honed from art collecting, day-trading, or house-flipping.
So far, those two bandwagons have set a pace that can support billions of dollars worth of CryptoPunks and newsworthy auctions at Christie’s. How long, if ever, before the bubble pops? Only time will tell.
I’m not one for jumping on bandwagons. Beeple’s work is very cool, but I have yet to see a JPEG or avatar that I’d spend ten cents to own as an exclusive. However, I do like exploring new and innovative spaces, and the NFT world gives me a sense of deja vu. Honestly, it reminds me of another famous bubble…
Remember the Internet?
Back in the mid-1990s, we had this hot new thing called the Internet. Computers were being connected into a planet-spanning network in a way that sounded like science fiction brought to life.
Internet pioneers did lots of cool stuff. Someone connected a vending machine to the Internet. Then someone connected a coffee pot to the Internet. Then corporate brands established their first primitive websites, and everyone went bananas. Then the startups. Then the money. Then the bubble.
Of course, the wrong things got ridiculously overhyped. Of course, the bubble was destined to pop. But the good ideas stuck, paradigms shifted, and our lives changed forever.
The NFT bubble could burst at any moment, leaving a few with permanent gains and many others with embarrassing losses. But even after the bubble pops and the faddish aspects fade, the technology will remain. The technology that makes NFTs possible is fascinating and has the potential to impact the future in unpredictable ways.
I’m not saying that the NFTs of today are exactly analogous to the Internet of the 1990s, but that’s how I’m approaching them. I want to master the technology. I want to find useful and productive use cases. I want to focus on books. That’s what Jeff Bezos did during the Internet bubble, and look how that turned out.
So far, NFTs have gained their biggest foothold in the visual arts, but any digital file can be made into an NFT, including text.
Authors and publishers are just starting to do some very interesting things. One online bookshop and publisher is offering “public domain as a service” NFTs, providing an utility that allows each buyer to sponsor of a public domain edition of the work. Another publisher is working on a cryptocurrency specific to books.
Like the Internet in its earliest incarnations, this is a technology with the potential to transform the world, including the world of storytelling and information.
Advantages of an NFT Book
Proof against piracy
Ebooks are easy to reproduce and redistribute, creating an ecosystem of pirated content. NFTs can’t prevent that. But it can authenticate copies for readers who want to avoid spreading malicious code and ensure that authors are being fairly compensated. A secure ledger provides proof of sourcing and ownership for every copy.
Protection against Censorship
The news in my country has recently included more examples of challenged books than ever. On the demand of parents and politicians, but almost never at the request of actual readers, books have been removed from school curricula, taken off supplemental reading lists, and removed from school libraries.
In societies where ideas and content are regulated by harsh governmental restrictions, the decentralized nature of NFT books makes them more censorship-resistant than traditional ebooks.
Ebooks as Assets
When you buy a print book, you own the unique instance of paper and ink that holds the content. You can resell physical books because they retain a value as second-hand books. Your particular copy of the book may also be a rare edition or one with an author’s autograph or other enhancement that makes it a collectible. What is a rare book worth? Whatever amount a buyer and seller can agree on. But when you do resell your copy, the author of the content doesn’t receive any secondary royalties.
When you buy an ebook, you obtain a license to read the content but hold nothing else of tangible value. Because you have no other rights than those granted by the license, you can’t legally resell the content unless the end-user agreement specifically grants you that right. If you do make copies for your friends, the author of the content doesn’t receive any secondary royalties.
When you buy an NFT book, it’s like buying a print book in that, in addition to being able to read the content, you also gain ownership over a unique asset that can be held or resold. It’s just made of data instead of being made of atoms.
The NFT book has the added benefits of a built-in certification of authenticity, built-in certification of rightful ownership, and a pristine condition that won’t degrade from wear and tear, moisture, mold, mildew, insects, fires, or coffee spills. Like a physical book, the value of an NFT book is whatever amount a buyer and seller can agree on. But unlike physical books and regular ebooks, the NFT book can be made to provide an author with secondary royalties each time it gets resold.
Physical books and ebooks don’t live in the same world, but they do rely on the same compensation model. Authors receive royalties on the initial sale of the pages or files containing their words. Continued royalties depend on a work remaining in print and continuing to sell new copies.
NFT books have the potential to compensate authors for each time a book finds a new reader through the resale of an existing copy.
Mad Messages are NFT book chapters with cover art in a trading card format. Anyone can see the cover, but only the owner of the NFT book chapter can unlock and read the text.
The Mad Messenger, Book #3 in the Galaxy Games series, is being initially released in two NFT editions. About 32 Mad Messages will be required to unlock the entire novel.
The 1st NFT Edition has only one unique instance of each episode. These are truly one-of-a-kind first editions.
The 2nd NFT Edition has three instances of each episode. These have a lower initial price, and having more available copies will make it easier for a collector to complete the set.
Future editions may be released as demand allows.
Questions that Remain
I’m still new at this and have a lot to learn, with very few existing examples in the NFT book space to learn from. Here are some of the questions I’m thinking about:
How would a person buy one of my NFTs, hold it in their digital wallet, and access it when they want to? I know these things are possible, but what would that experience be like? What extra costs and barriers would be required? Would disadvantaged readers be locked out of the NFT book market? Would it be worth the effort even for those who are able to partake?
NFT Book Libraries
How does a single NFT book scale to the point where a casual reader can assemble an NFT-based personal library of books? How would you display your NFT library? How could you share books with friends? How does an NFT book become a useful repository of knowledge or entertainment instead of a novelty investment for bored speculators?
Protecting the Environment
What about the environmental impact of blockchain in general and NFTs in particular? I was feeling great about my shiny new NFTs until I started reading about the energy requirements of the growing cryptocurrency economies.
What’s the carbon footprint of an NFT book, and how does it compare to cutting down a tree, pulping the wood into paper, then printing, shipping, warehousing, and delivering a paperback to a reader’s doorstep? Moore’s Law suggests that blockchain computations should become more efficient over time, and certainly there are some cryptocurrencies that place less demand on computer networks than others.
The Children’s NFT Book Market
I write for young readers who don’t typically keep their spending money in digital cryptocurrency wallets. For the forseeable future, the market for the NFT versions of my books is going to be made up of adults. No major problem there, since many adult readers also enjoy well-written YA and middle grade books. But if there’s a young reader in your life who may be looking for a sporty sci-fi series, you should steer them toward the print or ebook editions for now.
I’m not an expert in any of this. I’m stumbling along in footsteps that were made only a short time ago. Sometimes I’ll be carving untrodden paths into the wilderness. Sometimes I’ll be pausing at obstacles that need to be cleared away by other pathfinders. It promises to be a challenging but fascinating journey. I hope you’ll stick around for the ride.
Did you like this blog post?
Would you like to own it?
Then look for the NFT version, coming soon.